A Gas Tax Isn’t the Only Way to Fund Infrastructure

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The semi-annual discussions on America’s infrastructure spending – including how to fix potholes, as well as bridges, tunnels, ports and public transportation – should be studied in economics classes everywhere. It has everything: supply and demand, the multiplier effect of government spending, the tradeoff of taxation against consumption, international trade/fossil fuel pricing and, of course, politics.

And here we are in the first quarter of 2015, where there is lively discussion in the U.S. about raising the gas tax in order to save the highways (this time it’s because gas prices are low, so of course raising the tax would be welcomed?). It’s most often presented as a binary choice, that either the gas tax is hiked or there will be no money to keep our cars, trucks and buses in motion.

In fact, there are many ways to approach this, a gas tax being just one – which, along with taxes on truck tires, sales of trucks and trailers and heavy vehicle use, has been the primary source of federal road funding since 1956. But what is surprising is how many politicians and pundits, from the right and the left, seem to be fixated on this notion that gas consumption is the most reliable measure of road use.  It is not.

The fallacy of all that is how fuel efficiency and non-gas transportation (i.e., electric vehicles) have driven down the amount of gas consumed even while vehicles with four or more wheels continue to churn up the pavement. According to a November 2014 article in Wired magazine (“The New Congress Could Finally Fix Our Crumbling Infrastructure”), passenger vehicles were 27 percent more fuel efficient in 2013 than in 1993, the last time a gas tax hike was OKed by Congress. Fuel use will continue to drop as federal CAFE (Corporate Average Fuel Economy) regulations drive increasingly greater efficiencies through the year 2025.

To summarize, the cost of road use and maintenance has less and less to do with gas consumption. Therefore the wisdom of a funding structure based on this antiquated model should be challenged.

Further, actual driving is on the decline – Millennials have fewer drivers licenses and cars per capita than previous generations, opting instead to live in urban centers where driving is done through “car share” services when they are not walking, taking a train or bicycling. It’s important to consider who the road user is and how that influences pavement wear.

Goods and services still come to everyone’s home; but a third party such as FedEx or the postal carrier increasingly drives the vehicle. The goods at the store they walk or bike to still come by surface transportation. The groceries they order online arrive by a grocery-service van. Their Uber or Lyft rides aren’t on futuristic hoverboards (yet), but instead traditional cars that might be electric-powered and almost certainly are fuel-efficient vehicles.

It’s true that the costs associated with gas purchases by those delivery services, including a gas tax, can be built into the prices paid by consumers. But companies arguably make decisions that are more rational than those made by consumers. Corporations will seek out innovations in vehicle efficiencies and delivery methodologies to further eliminate gas consumption if that enables them to be more competitive. From what we are told, Amazon.com is experimenting with drones as a means of delivery.

So pinning the costs of road maintenance on the simple purchase of gasoline is a tactic that has receded and which fails to deliver the needed funds anyway. One solution is a VMT model (vehicle miles traveled), however the tracking and reporting required is already viewed with skepticism for privacy intrusions as well as added administrative costs.

Prior to establishment of the gas tax under the 1956 Highway Revenue Act road funding came from the general fund of the U.S. Treasury.  The tax per gallon was raised several times since, from three cents per gallon to the present 18.4 cent per gallon, where it has been since 1993. Since then, Congress has had to supplement the fund from general revenues. These special infusions of cash then become a game of hiding allocations within larger bills that are about something unrelated to fuel taxes and highway maintenance.

The real lesson in economics in all this is rooted in the physics of roads, bridges and other aspects of infrastructure. The older they get, the more weather they endure, the more traffic they carry and the less that proper maintenance is done all add up to increasingly expensive fixes. Or to put it in simple terms, a stitch in time saves nine. But how is that first stitch paid for?